Synthetic Assets - zAssets
Horizon Protocol bridges the products of traditional financial markets and brings it into the world of decentralized finance (DeFi) in the form of synthetic assets.
Synthetic assets are tokenized derivatives, which are contracts that represent the underlying value of an asset, without requiring actually holding the asset itself.
Synthetic assets can be stocks, tokens, indices, NFTs, or other financial products and are produced to mimic the original asset, typically in the form of its price. For example, a synthetic asset of a stock would mimic the price fluctuations of the stock, while a synthetic asset of a token would mimic the price fluctuations of the token.
Synthetic assets, known as a “zAssets” on Horizon Protocol, can track the price movement and risk reward profiles of traditional assets such as equities or stocks, commodities like gold and oil, currencies like the US dollar or Euro, crypto assets such as Bitcoin, Ethereum, and NFTs, and even baskets of multiple assets, like index funds or ETFs. Horizon Protocol’s very first “zAsset” is the “zUSD”, a stable coin tied to the value of the US Dollar.
Since synthetic assets are also tokenized, they are easily accessible and allow for an additional layer of DeFi products that can be applied to the asset, possibly giving yield-generating opportunities to investors on assets that may not have had these options naturally.
Defi and synthetic assets are a perfect evolution for derivatives. In the traditional market, derivatives are typically used for three reasons: to hedge a position, to increase leverage, or to speculate on an asset’s price movement.
With the derivatives market being estimated at over $1 quadrillion on the high end, a decentralized derivatives market that is borderless can provide more equal access to investment opportunities globally, as well as introduce new innovative derivative products that have never existed before.
To make a decentralized synthetic assets market possible, Horizon Protocol establishes a system for providing collateral to back the issuance of “zAssets”. The collateral is in the form of Horizon Protocol’s native token, “HZN”, which is staked to make sure there is sufficient value underlying all “zAssets”. Dividends are then paid out to all users who have staked HZN to help support the market.
For stability, incentives are in place to make sure stakers actively participate in the staking process to balance out the collateral-to-asset ratio.
Synthetic Assets produced on Horizon Protocol are called zAssets. For example, Bitcoin (BTC) would be called zBTC and Apple (APPL) stock would be called zAPPL.
zUSD is the core zAsset of Horizon Protocol and is a stablecoin pegged to the US Dollar. zUSD is important because the total value of all the synthetic assets (global debt) produced on Horizon Protocol is evaluated and denominated in zUSD.
Horizon Genesis will guarantee that zUSD is valued at $1.00 when being minted or burned. The value of zUSD that exists on the open market could fluctuate in price (based on supply/demand forces), but that would create arbitrage opportunities to profit between the open market and Horizon Genesis.
zUSD will also facilitate the trading of other zAssets, which will be available on the Horizon Exchange (under development).
Horizon Exchange will offer cross-chain crypto derivatives, traditional asset derivatives, as well as new financial products/assets.